Safaricom | A cash machine
After 11 years of expanding Safaricom's telco market share to c.70% in Kenya, through strong execution and the success of M-Pesa, we expect macro factors to limit Safaricom's service revenue growth in FY'20 and FY'21 to 8% and 9% respectively (historic six-year CAGR: 13%). Safaricom's FY '19 results were resilient with service revenue growth of 7% y/y and EBITDA margins stable at 50%. However, we do not believe the current share price is awarding a fair premium multiple to M-Pesa, which is a leading global mobile money platform.By our estimates, Safaricom's forward EV/EBITDA of 8x ascribes no premium for M-Pesa. M-Pesa is capex light and diversifies the Group's revenue exposure away from its legacy telco dependence, adding longer-term growth and reducing subscriber churn. Accordingly, we estimate that M-Pesa should be valued at 14x EBITDA, for a group blended EV/EBITDA of 10x.
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